By Daniel Hunter

The Government’s sale of shares in Royal Mail, planned for this financial year (2013/14), is based on commercial reality, not ideology, Business Minister Michael Fallon will say tonight (Monday) in a speech to the Policy Exchange.

He will say that: “Our decision will not be based on ideology. It will be a practical, logical and commercial decision.” The speech follows an update to Parliament last week which clearly set out the government’s intention to sell shares in Royal Mail this financial year.

He will announce that the tendering process to procure a syndicate of banks to advise on a possible flotation will begin within the next few days. The Department for Business Innovation and Skills (BIS) specialist commercial arm, the Shareholder Executive, hopes to appoint the lead global advisers at the end of May.

At the same time Royal Mail will begin exploring access to capital with the debt markets, also in the coming weeks. Both of these processes are part of ongoing work to prepare Royal Mail for a sale of shares during the current financial year.

Ministers do not want to be tied to a specific type of sale or an artificial deadline. Mr Fallon will announce that the government is attracted to an IPO as the preferred method of sale, but all options remain on the table and no final decisions have been taken.

Mr Fallon will also confirm the government is currently considering the options for the shape of the employee share scheme for Royal Mail’s employees. He will confirm that BIS is continuing to talk to the Communication Workers Union (CWU) — the union which represents Royal Mail employees. He will continue to encourage the CWU to engage with government officials on the structure and terms of the employee share scheme.

He will say “I strongly believe that employees should share in the company’s future success and dividends…. And it is our intention to have such a scheme in place at the time we conduct a sale of Royal Mail.”

Mr Fallon and Business Secretary Vince Cable agree with the assessment made by Richard Hooper in his independent review that the status quo cannot continue. Royal Mail cannot continue to compete for scarce public capital against other public services like hospitals and schools.

Mr Fallon will say ”Unless Royal Mail has the capability in the future to access equity markets, every £1 that it borrows, is another £1 on the national debt. That means growing the national debt. No responsible party could propose that in the current environment or for that matter in any environment when Royal Mail — run on a fully commercial basis — has the capacity to be cash generative, profitable and perfectly able to raise the capital it needs from the private sector.”

Michael Fallon will also confirm that there will be no change to the six days-a-week service at uniform affordable prices, which delivers to urban and rural areas throughout the UK — provided by Royal Mail. Only Parliament can change the minimum requirements for the service that are enshrined in law as part of the Postal Services Act 2011. All steps being taken have the protection of the universal service at their core.

He will say: “A change of ownership in Royal Mail will not mean that Royal Mail can stop delivering to rural areas. Royal Mail will remain the UK’s designated universal postal service provider and must continue to provide a six day-a-week service throughout the UK.”

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